HSBC used by ‘drug kingpins’, says US Senate

A US Senate committee says that the HSCB provided a conduit for “drug kingpins and rogue nations”, for money laundering. The report says suspicious funds from countries including Mexico, Iran and Syria had passed through the bank. The committee is hearing from HSBC officials, one of whom said he found it “painful and embarrassing” to talk about the bank’s shortcomings.

Also, HSBC’s head of group compliance, David Bagley, stepped down at the hearing. At the hearing Bagley said that the bank had “fallen short of our own and regulators’ expectations but that a major overhaul of the bank’s compliance activities was underway and that HSBC had “learned a lot of valuable lessons”. BBC

And Sen Carl Levin said HSBC’s lack of controls at its US and overseas units had been “a recipe for trouble”. Levin is chairman of the Senate Permanent Subcommittee on Investigations, which is looking into HSBC’s activities between 2006 and 2010. The report also said that some HSBC bank affiliates got round US government rules prohibiting financial transactions with Iran and certain other countries, in some cases assisting terrorism.

The HSBC accepted more than $15bn in cash from subsidiaries in Mexico, Russia and other countries at high risk of money laundering but failed to conduct any
monitoring of these bulk cash transactions between mid-2006 and mid-2009. And the HSBC knew of lax anti-money laundering practices at its Mexican subsidiary HBMX, which had dated back to its purchase in 2002.

It was also discovered that drug money from Mexico was laundered too. The one HSBC executive, Paul Thurston, who was head of retail banking and wealth
management, said the bank had taken wrongdoing seriously, and had taken action
on many occasions, including dismissing staff.

He told the hearing of the difficulties of working in Mexico, which, he said, was a dangerous environment where kidnapping of bank staff was widespread and employees came under pressure from criminals who would attempt to corrupt them. Mr Thurston referred to substandard record-keeping and the difficulty of knowing who the bank’s clients were. He said: “Some of the things I found frankly took my breath away.” BBC

The subcommittee heard first from David Cohen, Under Secretary for Terrorism and Financial Intelligence and Leigh Winchell, assistant director, of the customs enforcement unit ICE, which is part of Homeland Security.

Before the hearing began, HSBC said in a statement, that it expected to be held accountable for what went wrong.

The report also names individual cases such as that of Chinese-Mexican citizen, Zhenly Ye Gon, a long-standing client of HBMX. Back in 2007 in a joint effort by the Mexican government and the DEA, they seized more than $205m in cash at his residence – described as the largest drug-related cash seizure in history.

Many of HSBC’s breaches of US anti-money laundering relate to its use of bearer share accounts. Under the rules for these accounts, ownership of shares and the income they incur can be passed from person to person in secrecy. HSBC’s US subsidiary HBUS had opened more than 2,550 accounts for bearer share corporations. These businesses are commonly set up in tax havens such as the British Virgin Islands. BBC